Britain should apologise to more than a million policyholders in Equitable Life and offer them compensation, a report by the parliamentary ombudsman said yesterday, almost a decade after the insurer's near-demise.

Britain's oldest mutual insurer, with 1.5 million policyholders at its peak, almost collapsed in 2000 after being forced to honour unsustainable guarantees stretching back 30 years. It eventually closed to new business in one of Britain's most dramatic financial scandals.

The report by parliamentary ombudsman Ann Abraham, who has been probing the case for four years, will not guarantee a payout for all policyholders and further delays are expected but it should hearten those who have campaigned for years for government compensation.

"(Those) responsible for undertaking financial regulation should act in a way that is compatible with the duties and powers which parliament has conferred on them," she said.

Vanni Treves, who became chairman of Equitable Life in 2001, said regulators' failure to tackle problems at the society meant the government should compensate policyholders who suffered losses as a result. The report found that even after July 1998, when regulators were aware of growing problems, their actions were "largely ineffective and often inappropriate".

As a result, Abraham's report recommended a compensation scheme to redress losses, and called on the government to act swiftly, as tens of thousands of policyholders have already died since Equitable Life closed to new business. The report said a compensation scheme should be set up within six months of any decision by the UK government, adding that it should take no longer than two years to determine who is eligible for payout and how much they should receive.